چکیده انگلیسی

The impact of long-run productivity growth on unemployment is studied. We incorporate disembodied technological progress and on-the-job search into the endogenous job separation model of Mortensen and Pissarides (1994). Because we include on-the-job search, faster growth reduces unemployment by decreasing job separation and inducing job creation. The incorporation of on-the-job search substantially improves the ability of the Mortensen and Pissarides model to explain the effect of growth on labor market variables. Specifically, our model generates not only an empirically consistent sign of the effect, but also a larger impact of growth on unemployment than the standard matching model.

مقدمه انگلیسی

The relationship between productivity growth and unemployment has been investigated in both theoretical and empirical studies. Recent empirical studies find a negative relationship between the two, both in time series and cross-country data.1 The search and matching model, which has been often used for studying aggregate labor markets, faces several challenges generating this negative relationship. Pissarides and Vallanti (2007) demonstrate that the matching model with disembodied technological progress (henceforth DTP) predicts a negative relationship between productivity growth and unemployment, but cannot replicate a large enough magnitude. Furthermore, Prat (2007) demonstrates that once endogenous separation is incorporated, faster productivity growth increases job separation due to the so-called outside option effect; consequently, the model can generate a positive relationship between productivity growth and unemployment.
This paper re-visits the effect of long-run productivity growth on unemployment, focusing on worker flows. We first document the fact that productivity growth increases the job finding rate and reduces the separation rate, lowering unemployment at low frequencies in the US. Then, we develop an endogenous job separation model with on-the-job search and DTP to account for the empirical findings. Our analysis yields two main results. First, in our model, the effect of productivity growth on the unemployment rate is negative and larger than in the search and matching model with DTP and exogenous separation. Second, our model predicts that growth reduces the separation rate, while the model without on-the-job search generates a positive relationship between growth and the separation rate. These differences are the results of incorporating on-the-job search into the model.
Incorporating on-the-job search is motivated by the fact that a large fraction of workers who leave their jobs move immediately to new jobs without entering unemployment (Fallick and Fleischman, 2004 and Nagypál, 2005a). This gives rise to two channels through which faster productivity growth may reduce unemployment: an increased job finding rate and a reduced separation rate. First, on-the-job search adds another pool of workers for any new firm to recruit from. When productivity growth is high, increasing search activity by employed workers expands the pool of potential hires for firms. This induces more job creation and lowers unemployment. Second, the incorporation of the on-the-job search makes it more likely for the separation rate to fall when productivity growth increases. Faster productivity growth can reduce separation by increasing option value of the existing job match, but it can also increase separation by increasing the workers' outside option. The presence of on-the-job search weakens the second effect. In the model, workers in firms with low productivity jobs search for a better job. Some of the benefit from on-the-job search is shared with the firm through the wage. This allows otherwise unproductive jobs to survive, leading to lower job separation when productivity growth increases.
Incorporating endogenous job separation and on-the-job search substantially improves the ability of the standard matching model with DTP to account for the size of the impact of growth on unemployment. Using the standard matching model with DTP, Pissarides and Vallanti (2007) show that a 1% decrease in the growth rate increases unemployment by about 0.01%, assuming Nash bargaining over wages. This is far from the estimated magnitude in the empirical literature. Blanchard and Wolfers (2000) estimate that a 1% decline in the growth rate leads to a 0.25%–0.7% increase in the unemployment rate. Pissarides and Vallanti (2007) find the effect to be 1.3%–1.5%. In our model, a one percentage point decline in productivity growth increases the unemployment rate by 0.23%. This result is in contrast with earlier studies by Pissarides and Vallanti (2007) and Prat (2007) both of which fail to find such a strong negative relationship between productivity growth and unemployment.2
The remainder of the paper is organized as follows. Section 2 presents salient features of the US aggregate labor market in the long-run, and discusses the relationship between productivity growth and the labor market. Section 3 develops a generalized Mortensen and Pissarides model with on-the-job search. In Section 4, we calibrate the model parameters and present the results of quantitative comparative statics exercises. We also discuss the sensitivity of the numerical results to our choice of parameter values. Section 5 concludes.

نتیجه گیری انگلیسی

Focusing on worker flows, this paper studies the impact of long-run productivity growth on unemployment. We document the fact that productivity growth increases the job finding rate and reduces the separation rate, decreasing unemployment at low frequencies in the US. To account for these empirical findings, we incorporate on-the-job search into the endogenous job separation model of Mortensen and Pissarides (1994) with disembodied technological progress. We show that our model not only generates an empirically consistent sign of the impact of growth on unemployment, but also generates a larger magnitude than the standard matching models with productivity growth. This is in contrast to earlier studies, including Pissarides and Vallanti (2007) and Prat (2007).
On-the-job search strengthens the capitalization effect, inducing more job creation. It also reduces job separation by weakening the outside option effect. Through these two channels, on-the-job search improves the ability of the model to match the magnitude of the impact of productivity growth on unemployment.
A number of important issues remain for future research. One issue to be considered is the magnitude of the impact of productivity growth on unemployment. Although our model generates a larger magnitude of the impact of productivity growth on unemployment than standard models, it is still smaller than the estimated effect in the data. Also, considering other wage determination mechanisms is an important issue. In a typical on-the-job search model, surplus sharing is not equivalent to the Nash bargaining solution because of the non-convexity of the Pareto set. A number of studies consider alternative wage determination mechanisms in a matching model with on-the-job search. However, most of these studies assume exogenous job destruction. Considering an alternative wage setting mechanism in an endogenous job destruction model with on-the-job search is a fruitful avenue for research.